HOW TO SET UP ECONOMIC RELATIONS IN THE ENERGY MARKET FOR THE REALIZATION OF CLIMATE PRESERVATION POLICY Goran Granić, PhD General Manager of Energy Institut.

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Presentation on theme: "HOW TO SET UP ECONOMIC RELATIONS IN THE ENERGY MARKET FOR THE REALIZATION OF CLIMATE PRESERVATION POLICY Goran Granić, PhD General Manager of Energy Institut."— Presentation transcript:

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HOW TO SET UP ECONOMIC RELATIONS IN THE ENERGY MARKET FOR THE REALIZATION OF CLIMATE PRESERVATION POLICY Goran Granić, PhD General Manager of Energy Institut Hrvoje Požar Energy day in Croatia, Zagreb, 28 th November 2014 23 rd Forum: HOW TO DEFINE AND IMPLEMENT AN ENERGY POLICY IN LIGHT OF NEW EU GUIDELINES FOR THE YEAR 2030?

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What is the current climate policy, how was it defined, and what are measures for the implementation of climate policy? EU policy is expressed through simple marketing message 20/20/20, in which the target (emission reduction) is equated with measures (increase of efficiency and use of renewable energy sources). Policy with three goals has been implemented as three separate politics with negative consequences.

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Consequences of the current climate policy  Emissions trading, as an instrument of market mean to determine prices of climate protection, has not given the expected results. The system is costly and administratively demanding.  Renewable energy support through feed-in tariffs and administrative determination of the position of RES in the sale of electricity, has given the initial results, but after the implementation of more than 10%, it has started to produce negative effects that caused the destruction of the electricity market and a number of negative effects.  Support for energy efficiency gave modest results, mainly because funding sources have not been provided.  Solution to the problem of reducing emissions in traffic is at the beginning, the current model of collecting taxes was not related with actual emissions, and the new model is better, but unnecessary administratively demanding.  Prices of CO 2 emissions have discouraged technological development of CCS technology.  In general, measures were not mutually harmonized and evaluated in order to reduce emissions.

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Price of electricity and renewable energy in the current concept of renewable energy support

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New EU guidelines by 2030  Reducing greenhouse gas emissions by 40% below 1990 level, (43% EU ETS sector, 30% sectors outside the EU ETS); EU ETS reform;  Share of renewable energy 27% at the EU level;  Energy efficiency 27% at the EU level;  Electricity interconnection capacity 10% by 2020, 15% by 2030;  New administrations responsible for monitoring of the implementation of RES projects and the improvement of regional cooperation; Comment  New guidelines for 2030 are just superficial changes of the old model which was valid for period till 2020, keeping in implementation all unsuccessful elements (ETS), or those that cause big problems in energy system (RES).

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Main social goals of the EU Policy GoalsMeasuresConditions 1. Climate protection 1. Energy Efficiency increase Financial support Technological development 2. More usage of RES Financial support Technological development 3. Generation and consumption of energy without CO2 emission Technological development CSS for fossil fuels Real price of CO2 emission/ financial support Nuclear power plants Regulated activity?/ financial support 2. Competitiveness Market without borders and limitations Cancel any privileged position of generating facilities 3. Security of Supply Energy infrastructure development Security of Supply to be treated as special cost category  Implementation policy should take into account uniqueness of climate preservation policy and all necessary conditions for the market development and security of Supply.  Implementation policy should not disregard market or increase insecurity of Supply.

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Basic principles for development of new model for Climate Policy implementation  Climate preservation policy has its price which will increase price of electricity for the costs of its implementation;  Technological development is necessary for the realization of the climate policy;  Gathering of resources for the implementation and all financial supports should be tightly bound for the reduction of CO 2 emissions;  Climate policy should be harmonized with development of energy market and Security of Supply;  Measeres for implementation of climate policy and emission reduction should be harmonized to give synergy effect;  Priorities in measures should be based on their contribution to the emission reduction;  Each measure must have financing source from CO 2 emissions;  Model of climate policy implementation should have simple administration and be unambiguous in its exertion;

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New implementation policy - Proposal  Policy uniqueness, one goal: CO 2 and opportunity to measure goal achievement;  Economic connection between all segments of climate policy through a single instrument: a tax or a fee on CO 2, the unique measure for all energy sources, all technologies and all measures for CO 2 reduction;  Financing activities of emission reduction through unique criteria and priorities resulting from contribution to the CO 2 emissions reduction;  Riddance of electricity market administrative restrictions and privileged positions in sale of electricity, allowing the market to "breathe with lungs full capacity";  Promotion of technological development

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The implementation concept  The implementation concept should not disturb, with any measures, the basic principle of EU energy policy – open energy market.  For the creation of the new EU energy policy it is necessary to choose basic principles:  The open energy market in its entire extend and under same legal principles,  The unique climate policy, uniform in the way of fundraising, special CO 2 emission tax,  To achieve distribution of funds due to the principle of cost - effectiveness. Subsidies should be solved on the investment side without the energy market destruction,  To continuously invest into technological development and to achieve synergy effect on the EU level.

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Tax or CO 2 charge  The key issue is the height of the dedicated tax or charge and how to determine it:  to be in correlation with set up reduction emission goals,  to promote technological development,  to promote society and goals development vision, especially in the sense of setting up legal framework as well as standards and norms for the future development of the energy sector,  to promote synergy of science, education and economic development – greater synergy, lower tax.

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Renewable energy sources (RES)  Shortcomings of the present model:  Financial funds for subsidizing renewable energy sources are collected from the end users without any climate change policy. Due to the fact that they are on the end of price modeling system they do not affect on the wholesale price of the energy, although the buyer pays the total price.  Preferential status in the placing of produced energy by the state to the rest of the market is not affected.  Preferential status according to defrayment of the balance cost of production as well as all additional costs.

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RES – the new approach  In the new model is necessary to set up new relations in order to eliminate imperfections of the present model while keeping the incentive relation to renewable energy sources implementation increase  What should be done?  Introduction of dedicated tax or CO 2 charge and financing of RES implementation from these funds in order to involve RES into the climate preservation policy.  Abolishment of the renewable energy sources preferential status and their positioning into peer to peer market relation with respect to other energy sources. In that way, the entire chain, from equipment manufacturers, financial institutions to the investors becomes dependent on the achieved production price and in consequence positively implicate on the reduction of investment cost.  By transposing the subsidies from the cost side to the investment side the investor is into a position to compete for placing its own production. The investment fostering could be done through the share in ownership as well, but without participation in profit.  By transposing the subsidies to investment side for the consequence will have reduction of investment cost, i.e. equipment price because the insecurity of production placing will positively affect on the competition as well.

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Energy Efficiency (EE)  Energy efficiency could be divided in few groups: buildings, devices, facilities, consumption management.  In buildings sector cooling and heating energy is greatest challenge in regard to energy, economic and organizational aspect.  Renewal of old buildings is first priority.  In regard to appliances and devices cycles of substitution are shorter and standards and technology development are of importance.  Industrial facilities are in group for which technological development is crucial for the increase of EE. Here the substitution of equipment happens naturally often because of the concurrence.

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Energy Efficiency (EE) Focus of EE increase is on:  Very urgent making new more strict rules for the new buildings which follow optimal ratio of global costs of buildings (energy commodities and maintenance) and value of investment up to 50 kWh/m 2 of primary energy (needed energy for heating 20 – 40 kWh/m 2 per year).  Additional request for greater number of buildings with almost zero energy up to 10% of the new buildings.  Requirements for buildings with almost zero energy, with primary energy of 23 kWh/m 2 (heating <15 kWh/m 2, cooling, lightening, ventilation), with obligatory usage of 30 to 50% energy from RES.  Difference in investment for the zero energy buildings and new buildings is between 500 and 1500 HRK/m 2.  Yearly is necessary to build about 150.000 m 2 of buildings with almost zero energy to realize goals of decreased energy consumption in buildings.

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Income from tax or fee on CO 2 from households for the heating technologies and insulation

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Transport  New model starting from next year is more advanced than previous, but administratively too complicated.  New model is suggested based on the principle „polluter pays“, where CO 2 is integrated as only criteria. That measure promotes more efficient vehicles.  Special tax can also influence fuel choice, promoting usage of CNG.  New technologies and electric cars should be in the fist phase financially supported.  Some researches show that till 2050 should be more than 50% of personal cars on electricity to satisfy EU goals for reduction of emissions from transport sector.

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Transport Dependence of the tax rate and tax on CO 2 for some types of the personal cars in accordance with recommended system

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Support distribution Model  Structure of distribution of income for the three scenarios 1. EE, waste, transport and RES not connected on the power grid 2. EE, waste, transport and RES connected to the grid 3. EE, CCS, waste, transport and RES connected to the grid Energy efficiency RESWasteTransport 67,33%9,53%3,67%19,47% Energy efficiency RESWasteTransport 62,56%15,94%3,41%18,09% Energy efficiency RESCCSWasteTransport 58,45%16,24%5,22%3,19%16,90%

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Support distribution Model – analysis results  For Croatia, case II is of interest  Results show Energy efficiency as priority.  Results point also on need to secure enough resources for EE, which is enabled by introduction of special fee on CO 2. Income distribution, I Income distribution, II Income distribution, III

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Recommendations Focus of the new energy policy should be on the CO 2 emissions - on the side of the income through special fee on CO 2, and on the other side on the promotion of energy efficiency, RES and technological development. For all the new projects should be defined aims for the energy efficiency on the higher level; Specially in the building sector. Standard qualities of EE should be determined for devices and appliances, excluding from the market those which don’t satisfy new requirements. Through the new model new possibilities open for the RES usage. In transportation is important to use more efficient cars, combining restrictive and supportive measured in regard to new and old technologies.